Iran Nuclear Deal May Blow Up Ban On U.S. Oil Exports

Continental Resources, EOG Resources and other U.S. shale companies that pump oil from areas of Texas and North Dakota dubbed "Cowboyistan" could be among the biggest beneficiaries of the nuclear deal with Iran.

While the economic reasons for lifting the export ban on U.S. crude have been well established, the political reasons are coming into sharper focus as Washington prepares for a backlash against the Iran agreement, which would also lift economic sanctions and allow the country to boost oil exports.

The Iranian nuclear deal is looking like a sure thing, with Sen. Barbara Mikulski, D-Md., saying Wednesday that she supports it. That brings the tally of Senate backers to 34, which is enough to prevent Congress from overriding a White House veto of bills to sink the Iran pact.

"It's indefensible to keep the U.S. export ban in place, while we are lifting the Iranian crude export ban," said Joe McMonigle, a senior energy analyst at the Potomac Research Group.

Gas Prices Could Fall McMonigle sees a bill to lift the ban on exports of U.S. crude as sailing through the House this year, while the Senate likely has 59 yes votes and enough undecideds to get the bill through. Once passed, he expects President Obama to sign the legislation.

The export ban started in the 1970s as an attempt to protect Americans from price spikes, some of which were caused by Middle Eastern countries using oil as a political weapon.

Studies have shown that ending the ban could lower fuel prices. Because gasoline is pegged to global oil prices, adding more oil to the market would push down prices. An Energy Department report Tuesday was the latest one to make that argument.

But lawmakers have worried that voters would punish them for lifting the ban if gas prices later were to rise, even for unrelated reasons.

Meanwhile, refiners like Valero (VLO) and their representatives in Congress have been some of the biggest advocates for keeping the ban.

New 'Political Calculus' For several years, North American refiners have been considerably more profitable than European ones, as they get nonexportable domestic crude at a discount. (Oil giants like Exxon Mobil (XOM) and Chevron (CVX) have both production and refining operations.) Now the "political calculus has changed" in the wake of the Iran deal, according to McMonigle.

"We are for lifting the ban on Iranian crude, but we aren't going to let U.S. companies export," he said. "That is — from a political standpoint — greater than the argument that we should keep the oil here.

The collapse of oil prices has added more political momentum, with oil producers telling their representatives that exports would help sustain drilling activity and related jobs by allowing firms to fetch higher prices overseas.

Oilfield service giants Halliburton (HAL) and Schlumberger (SLB) already have announced plans to lay off tens of thousands globally.

Shale players also have pushed geopolitical arguments.

"We know lifting the ban would de-intensify the Middle East," Continental Resources (CLR) CEO Harold Hamm said at a conference in June. "And we need to get supplies to our allies in Europe who are so dependent on Russia.

Underpinning the moves in Washington is the shale boom, which has helped the U.S. more than double its crude output in the past 10 years.

"The shale revolution is highlighting the fact that the U.S. is really energy secure," said Jim Krane, an energy researcher at Rice University's Baker Institute. "And that energy security doesn't come from hoarding crude at home, but trading it on the market.

That explosion in production already has helped erode the export ban. The Obama administration recently relaxed some rules on exporting certain types of lightly processed fuels, which aren't covered by the ban, and has approved limited fuel swaps with Mexico.

So far, the slow erosion hasn't sparked strong opposition, but Krane isn't as sure as McMonigle is that Congress will end the export ban this year.

He noted that oil prices are below $50 per barrel and are likely to rise at some point, which would boost gasoline prices and weaken the political resolve of lawmakers.

Edward Jones energy analyst Brian Youngberg said the odds of the export ban being lifted continue to improve, citing the Iranian nuclear deal and America's reduced dependence on foreign oil.

"While it made sense to prevent exports four decades ago, it's a different world and we need to adapt to the times," he said.

Congress seems to be leaning toward removing the ban. House Speaker John Boehner supports the move, and a few top Democrats have shifted their tone on the ban.

Last month, Senate Minority Leader Harry Reid told Politico that politicians will "have to work out some sort of compromise" on exporting crude, though he didn't say if he backs the ban's removal.

While speaking out against the Iran nuclear deal, Sen. Bob Menendez, D-N.J., said the U.S. should instead "consider licensing the strategic export of American oil to allied countries struggling with supply because Iranian oil remains off the market," according to the Financial Times.